As the trading market chaos continues with the clash between rookie brokers and Wall Street, American platform Robinhood raised more than $1 billion in additional emergency cash, according to The New York Times reported.
The trading platform opened a credit line between $500 million and $600 million with six banks and approached existing investors, which include Sequoia Capital and Ribbit Capital, for additional cash.
The need for the emergency came as the young retail traders, who are popularly discussing their strategies on the WallStreetBets subreddit, pumped the price of stocks like Gamestop and a few others bringing the hedge funds, who shorted these stocks, down on their knees.
Robinhood, which literally brewed these rookie traders with its commission-free simplified platform, saw an extraordinary trading volume in the last few days and now has to pay customers who made money from the trades and also have to pay collateral to the central clearing hub, the Depository Trust & Clearing Corporation.
A Dramatic Week for the Trading Industry
Thursday’s trading session was also very dramatic for Robinhood as the company first restricted transactions for volatile stocks, like GameStop, AMC Entertainment, Blackberry, and Koss, to closing only positions.
Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and make adjustments as needed.
— VLAD (@vladtenev) January 28, 2021
Outraged traders, however, turned against the no-fee platform and filed a federal lawsuit accusing Robinhood’s involvement in market manipulation. This legal move, along with criticism across its userbase, forced the trading platform to roll back some of the restrictions.
“Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed,” Robinhood announced. “To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to.”
Citing two anonymous sources, the report outlined that the existing investors extending a helping hand to the trading platform will receive additional equity at a discounted valuation. The California-based company is planning to go public later this year.
Though Robinhood seems to have made most of the headlines, the market chaos has affected the entire trading market. Other platforms like Interactive Brokers and Trading212 also imposed restrictions as international traders started to jump into the frenzy.